Gottfried Haberler, “Geldtheorie und Konjunkturtheorie. By Friedrich A. Hayek” (1931)

Gottfried Haberler’s review introduces American economists to Hayek’s monetary explanation of the business cycle, emphasizing its departure from theories centered on movements in the general price level. Reviewing Hayek’s 1929 book, Haberler finds particular relevance in an explanation that can account for depression even when wholesale and retail prices have not varied seriously. His central interpretive point is that monetary disturbances work through the relationship between credit, interest, and real saving; price stability need not imply economic equilibrium.

Following brief methodological observations, Hayek’s second chapter challenges non-monetary cycle theories. As Haberler reconstructs the argument, factors such as optimism, uncertainty, and changes in saving must also be conceivable in a barter economy if they are genuinely independent of money. Yet in barter, interest constrains investment to the resources released by actual saving:

But it can be shown that, under a barter system, the rate of interest is a sufficient check on overinvestment, which is commonly regarded as the essential feature of the upward swing of the cycle.

The conceptual move is to identify credit as the mechanism that loosens this constraint. In a monetary economy, investment can temporarily become independent of real saving. Non-monetary explanations of overinvestment therefore often depend, implicitly or explicitly, on credit expansion.

Haberler next places Hayek within the Wicksell–Mises tradition while identifying his revision of Wicksell’s criterion of monetary equilibrium. A money rate below the natural rate encourages investment beyond real saving, but this need not produce rising prices. In an expanding economy, additional credit may merely offset the downward pressure of increased production on prices. Thus the interest rate that stabilizes prices may itself be too low:

In other words, Dr. Hayek’s “equilibrium” rate is that which obtains if there is no increase in the amount of the circulating medium.

For Haberler, this separates Hayek’s theory sharply from conventional price-level explanations: the decisive disturbance is the market rate’s departure from the equilibrium rate, whether or not inflation becomes visible in aggregate prices.

The review also specifies the book’s limits. Hayek does not yet explain in detail how distorted investment culminates in crisis; Haberler reserves that question for the forthcoming Prices and Production. The present volume instead explains why the interest-rate discrepancy repeatedly arises. Banks can create deposits and have incentives to do so; one bank’s expansion can enable others to expand, setting a cumulative process in motion.

Crucially, the initial impulse need not originate in banking. An invention or a wave of optimism may raise the natural rate while the market rate fails to follow. Haberler treats this qualification as an opening toward reconciliation:

This statement opens the way for a very acceptable compromise with the non-monetary theorist.

Money supplies a necessary enabling condition without necessarily supplying the initiating event. Haberler consequently regards the classification of the theory as monetary or non-monetary as less important than its account of how real changes interact with credit institutions. He infers that stabilizing the quantity of circulating money might follow as a policy prescription, but carefully distinguishes his inference from Hayek’s own refusal to commit to a definite policy.

The review closes with strong approval tempered by a substantive reservation:

The reader, however, should suspend final judgment until the appearance of the author's Prices and Production, for which the present volume is an indispensable introduction.

Haberler’s assessment thus presents the book as a significant reconstruction of monetary cycle theory whose account of recurrent credit disequilibrium still requires a fuller explanation of production and crisis.